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You Are Relaxed. You Are Content. You Are Approaching `Tea Mind'

November 29, 1992

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YOU ARE RELAXED. YOU ARE CONTENT. YOU ARE APPROACHING `TEA MIND'

The founders of Banana Republic Inc. are back in business. Mel and Patricia Ziegler, the couple who cashed in on the 1980s craze for khaki clothes with safari-theme catalogs and stores, think they're on to a new trend for the 1990s: tea.

Convinced that most Americans have never tasted a good cup of tea, the fortysomething Zieglers, along with partner Bill Rosenzweig, 33, are out to convert the coffee-drinking public. To do it, they've launched Republic of Tea. It markets 21 types of natural tea through department stores and gourmet shops across the country. Packaged in cylindrical tins decorated with whimsical watercolors, the full-leaf and herbal teas carry such names as Mango Ceylon, Tea of Inquiry, and Sky Between the Branches.

The leaves aren't cheap: Republic's teas, sold loose or bagged in round "pillows," cost from $6 to $16 for a 60-cup canister, depending on variety. That's three to five times as expensive as Lipton's. But Neiman Marcus, Macy's, Bloomingdale's, and Nature Co. have all signed on. "The packaging is gorgeous," gushes Jennifer A. Panchenko, who signed Republic of Tea for Dayton Hudson Department Store Co. "The whole line is very '90s."

LEAF CHIEF. Exactly, says Rosenzweig: "Tea is the wine of the '90s." Credit a confluence of social trends, he says, including a new interest in Eastern culture and a focus on home, hearth, and health. But more than anything else, Republic believes that Americans want to slow down the frantic pace of their lives. So just as the partners created an image of action and adventure with Banana Republic, they want customers to associate their products with what Mel Ziegler calls "tea mind."

That's why the motto is "Sip by Sip, not Gulp by Gulp." Ziegler, who is not Republic's chairman but its minister of leaves, says: "Tea is as much a metaphor for life as it is a product." Wife Patricia Ziegler, who created the company's look, is minister of enchantment. Chief Executive Rosenzweig, a former marketing executive at Nakamichi audio company, is minister of progress. And Bruce Katz, the founder of Rockport shoes, who provided Republic of Tea's seed capital of $250,000, is minister of big ideas. The company is based--no surprise here--in Marin County, Calif., across the Golden Gate Bridge from San Francisco.

Although retailers say that it is too early to get a handle on the 10-month-old company's sales, competitors say that they have been wowed by Republic's introduction. Indeed, Mo Siegel, founder of rival Celestial Seasonings Inc., already has expressed an interest in buying the company. "I like the market niche of being the elite of the elite," he says.

Ultimately, Republic of Tea's success will hinge on whether it can persuade consumers to give tea a try--and then make a habit of it. The tea market, dominated by Lipton, has been flat, at $1 billion, for years. The specialty tea market, which includes herbal teas, has doubled in 10 years--starting from a tiny base. It now brings in about $250 million in the U.S. annually.

CAFFEINE CUT. While Republic's partners frequently equate sipping good tea with drinking fine wine, neighboring Napa Valley isn't exactly in a panic. Although alcohol consumption is down, not even Ziegler expects a big switch from wine to tea.

It's the $3.5 billion coffee market the Republic is really after. "If we got two or three market-share percentage points from coffee, we would become the dominant specialty tea company," Ziegler says. The company hopes to cash in on consumers' efforts to cut back on caffeine: Tea contains far less than coffee. So far, the company says, it is on track to sell $500,000 worth of tea by next June and to build up to $2.1 million by 1994.

That assumes success for Republic's efforts to "educate" consumers about tea. Already, Currency Doubleday has published a book written by the partners about how Republic was built. (Its $100,000 book advance helped finance product development.) In October, the first Republic of Tea catalog was released, offering teapots, books of philosophy from the "Tea Mind Library," and even "tea" shirts silkscreened with such phrases as "I Want What I Have." Says tea importer Mike J. Spillane of G.S. Haly Co.: "I don't think they can fail on this one, unless they make it cultish to the point where people think it's a little too much off the wall."

Or too much of a fad. Banana Republic, which the Zieglers sold to The Gap Inc. in 1983, failed to adapt when the Indiana Jones look waned. Only recently has it become profitable again, sans Zieglers, with an upscale-Gap look. Republic of Tea will test the partners' ability not only to exploit social trends but also to keep up with them.Russell Mitchell in Marin County, Calif., with Sandra D. Atchison in Denver